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EM surprises no one: To take pensions, water, unsecured debt

Kevyn Orr

Kevyn Orrorr

By T. Kelly
The Michigan Citizen

DETROIT — In a closed meeting held June 14 outside the city at the Wayne County International Airport Westin Hotel, Emergency Manager Kevyn Orr revealed one part of his restructuring plan to bankers, financiers, the union representatives and the press.

It was every grim prediction residents have prophesized since Gov. Rick Snyder imposed Public Act 436 on Detroit in March.

“We’re going to do this once. Put the city on firm footing and go forward,” Orr said in releasing the plan. City taxpayers pay the highest millage rate in the state and only get back 40 cents on a dollar in city services, according to Orr.

Orr will regionalize the Detroit Water and Sewer Department, taking the assets and leaving the “legacy” costs with the city — the pension and debt obligations. In return, the city will receive an annual check from the new Regional Water Authority to bolster the general fund. Discussions are already underway.

The full pension plan was still under development, Orr said, noting he hoped to have final figures ready for a June 20 presentation to the unions.

Overall, the city expects to pay less than 10 cents on the dollar due for unsecured creditors, he said. Secured creditors are already taking hefty chunks from the city’s operating funds, he revealed. A lien on the casino income is draining $120 million a year from the general fund.

Orr stopped payment immediately on $23 million of unsecured debt.

Retiree health care will rely on Medicare, Obamacare and “some supplemental over that.” Retiree health care costs are currently $27 to $40 million a year, he said.

“Retirees will probably not enjoy the same benefits,” Orr said. Not only has the city not funded its pension obligations, but it has borrowed from the pension funds.

When reminded that the state constitution protects pensions, Orr said neither he nor anyone at the state believes the constitutional clause provides that guarantee, but if it proves to be true, he said, the governor would seek legislative relieve.

Orr’s selling point is there will be money to serve the citizens of the city. He plans reinvestment of $750 million for upgrading and restoring services in Detroit over the next 10 years: removing blight, investing in public safety including lighting, upgrading IT, bringing city administration into the 21st century, and improving emergency, fire and police service. These funds will come from the city’s general fund without state aid.

Orr said the state is adding $5.5 million for blight removal, but that money is Detroit’s share of a $21 million Troubled Asset Relief Program (TARP) fund grant from the Obama administration to the state of Michigan.

When questioned whether there is a moral distinction between paying health benefits for retirees or bond companies, Orr replied that “it is a substantive rather than moral issue and … under the law, a claim is a claim.”

The city has to find a way to bring reinvestment to the city, and under the law, all creditors in a class are treated equally, Orr said, unsecured or secured.

In response to a question about whether he would investigate crimes by creditor banks, Orr responded that he wants to refinance the city’s secured debt by giving creditors a note at 1.5 percent interest.

Joining Orr for the presentation were K. Buckfire, an investment banker from Miller Buckfire, and

Bruce Bennett of Jones Day, the multinational law firm that represents many of the banks that hold the city’s secured debt. Bennett is the lead attorney on restructuring. Jones Day is Orr’s previous employer.

The plan was developed without public input. Detroit City Council and the mayor receive their pay from the emergency manager but have no power, no voice.

Citizens have no recourse as Orr’s mandated public meeting demonstrated. He held it June 10 in the 260-seat Wayne State Law School auditorium, leaving over 100 persons outside clamoring to gain entrance. No part of the plan was revealed at that session for public comment or input.

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